CH 5 sample questions - 80

Class: Date: CH 5 sample questions - 80 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The price elasticity of demand measures the that results from a. a. change in quantity demanded; change in price b. change in price; change in the quantity demanded c. percentage change in price; percentage change in the quantity demanded d. percentage change in the quantity demanded; percentage change in price e. percentage change in the quantity demanded; change in price 2. The elasticity of demand is used to a. determine if consumers will or will not buy a product. b. measure how responsive consumers are to a change in price. c. determine in what direction the demand curve shifts if income changes. d. find the market equilibrium. e. determine if a change in price results in a shortage or a surplus. 3. To determine the price elasticity of demand, we a. need information on consumers' incomes. b. need to know how much is available. c. compare the percentage change in the quantity demanded to the percentage change in the price. d. compare the change in the quantity to the change in price. e. divided the quantity by the price. 4. Suppose the local university charges $85 per credit hour. If tuition increases from $85 to $93 per credit hour, using the midpoint method, what is the percentage change in price? a. 8.99 percent b. 8.00 percent c. 9.41 percent d. 8.62 percent e. 9.12 percent 5. Using the midpoint method, if the price of an airline ticket from Orlando to Pittsburgh falls from $275 to $238, the percentage change in price is a. 1442 percent. b. 14.42 percent. c. 15.54 percent. d. 13.45 percent. e. 68.00 percent. 6. Suppose the quantity of surfboards demanded in Santa Monica equals 13,903 in June. If a price increase led to the quantity demanded decreasing to 11,853 in July, using the midpoint method, the percentage change in quantity demanded equals a. 15.92 percent. b. 0.1592 percent. c. 17.30 percent. d. 14.75 percent. e. 19.45 percent. 1

7. Suppose the Chicago Enforcers football team lowers ticket prices by 13 percent and as a result the quantity of tickets demanded increases by 21 percent. This response means that the demand for Enforcer tickets is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic. e. perfectly elastic. 8. If the price elasticity of demand for moose hunting lessons is 4.23, then the demand for moose hunting lessons is a. elastic. b. unit elastic. c. inelastic. d. perfectly unit elastic. e. perfectly elastic. 9. Suppose the demand for peaches sold from one roadside stand in Georgia is perfectly elastic. As a result, a 7 percent increase in the price charged by the owner of this stand leads to a. zero peaches sold by this stand. b. no change in the quantity demanded at this stand. c. a 7 percent decrease in the quantity demanded at this stand. d. a 7 percent decrease in demand at this stand. e. a virtually infinite increase in the quantity demanded at this stand. 10. Suppose the demand for rescue services in our national parks is perfectly inelastic. This fact would mean that a 31 percent increase in rescue fees leads to a a. 31 percent decrease in the quantity demanded. b. 31 percent increase in demand. c. 31 percent decrease in demand. d. no change in the quantity demanded. e. decrease in the quantity demanded to 0 rescues. 11. Suppose a local photographer increases his prices by 8 percent and quantity demanded decreases by the same percentage. This set of facts indicates that the demand for his services is a. inelastic. b. elastic. c. unit elastic. d. perfectly elastic. e. perfectly inelastic. 12. If a good has many close substitutes, then its demand is most likely a. elastic. b. inelastic. c. unit elastic. d. perfectly inelastic. e. elastic or inelastic depending on whether the price of the good is increasing or decreasing. 13. One reason why the demand for gasoline is inelastic is because a. substitutes for gas abound. b. substitutes for gas are hard to find. c. gasoline is a luxury item. d. people have a long time to shop around for automobiles that use less gas. e. buses run on diesel fuel rather than gasoline. 2

14. The longer the time that has elapsed since the price of a good changed, the a. more elastic the demand for that good. b. steeper the demand curve. c. less elastic the demand for that good. d. smaller the amount of that good bought. e. fewer substitutes available for the good. 15. A product's price elasticity of demand is likely to be greater a. if it only has a few substitutes. b. if consumers spend a small proportion of income on the product. c. the less time consumers have to adjust to price changes. d. if the product is a luxury good, as opposed to a necessity. e. Both answers C and D are correct. 16. The demand for luxury suites at basketball games is elastic because a. these suites are a necessity. b. these suites are a luxury item. c. few close substitutes exist for these suites. d. basketball fans have little time to look for alternative suites. e. poorer fans cannot afford luxury suites. 17. The demand for a necessity generally is a. very elastic. b. infinitely elastic. c. unaffected by income. d. inelastic. e. unit elastic. 18. Demand is price inelastic if percentage change in the price leads to a percentage change in the quantity demanded. a. a small; large b. a large; small c. any; large d. Both answers A and B are correct. e. None of the above answers is correct. 19. If the price elasticity of demand for a good is 2, then a 10 percent increase in the price of that good the quantity demanded by percent. a. increases; 20 b. decreases; 2 c. decreases; 10 d. decreases; 20 e. increases; 8 20. Suppose the price of a ticket to a Lenny Kravitz concert is $41 and at that price, the quantity of tickets demanded is 17,000 per concert. Using the midpoint method of calculating percentage changes, if Mr. Kravitz raises the price to $48 and the quantity demanded decreases to 16,000, the price elasticity of demand for his concert tickets is a. 15.73. b. 6.06. c. 1.00. d. 0.39. e. 0.93 3

21. If the price elasticity of demand for a product is 3.0, then when its price falls from $1.50 to $1.25, the quantity demanded will increase by (Hint: Use the midpoint method for the percentage change in price.) a. 0.18 percent. b. 1.81 percent. c. 54.5 percent. d. 72.0 percent. e. 42.2 percent. 22. During January of 2005, the average price of regular unleaded gasoline in Oakland, California increased 11.0 percent. If the price elasticity of demand for gasoline was 0.13, the price hike means that the quantity demanded decreased by a. 1.43 percent. b. 8.46 percent. c. 0.16 percent. d. 4.31 percent. e. 6.46 percent. 23. Suppose the University of Oklahoma increases the price of student football tickets for the 2006 season by 30 percent. If the price elasticity of demand for student tickets is 1.22, the price increase leads to a. a 36.6 percent decrease in the quantity demanded. b. a 30 percent decrease in the quantity demanded. c. a 1.22 percent decrease in the quantity demanded. d. 28.78 percent decrease in the quantity demanded. e. no change in the quantity demanded. 24. Using the data in the table above, when the price of a skirt rises from $20 to $35, what is the price elasticity of demand? (Use the midpoint method.) a. 0.33 b. 0.25 c. 1.00 d. 1.33 e. 3.00 25. Using the data in the table above, the demand for skirts is a. elastic. b. unit elastic. c. inelastic. d. indeterminate. e. perfectly inelastic. 4

26. Using the data in the table above, when the price of a pizza falls from $10 to $9, what is the percentage change in price? (Use the midpoint method.) a. 8.2 percent b. 15.5 percent c. 10.5 percent d. 5.0 percent e. 1.0 percent 27. Using the data in the table above, when the price of a pizza falls from $10 to $9, what is the price elasticity of demand? (Use the midpoint method.) a. 0.5 b. 0.6 c. 0.9 d. 2.1 e. 8.6 28. In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $6 to $5 is equal to a. 2.50. b. 1.63. c. 1.10. d. 0.91. e. 1.00 5

29. In the figure above, using the midpoint method, the price elasticity of demand when the price falls from $7 to $6 is equal to a. 2.50. b. 1.63. c. 0.40. d. 0.62. e. 1.00. 30. Total revenue equals a. price quantity sold. b. profit cost. c. price. d. quantity sold cost. e. cost price. 31. Total revenue increases if the price of the good a. rises and demand is elastic. b. rises and demand is inelastic. c. rises and demand is unit elastic. d. falls and supply is inelastic. e. falls and demand is unit elastic. 32. Products X, Y, and Z have price elasticities of 3.0, 0.80, and 1.0 respectively. Total revenue decreases if the price of a. product X falls. b. product Y falls. c. product Z falls. d. product X or product Z fall. e. product Y or product Z fall. 33. The price elasticity of demand for wheat is less than one. If a drought caused the supply curve for wheat to shift leftward, then a. wheat farmers' total revenue will decrease b. wheat farmers' total revenue will increase. c. wheat farmers' total revenue will not change because people will buy the same amount as before. d. the demand curve for wheat also will shift leftward. e. wheat farmers' total revenue will probably change but we need information on whether the price of wheat rises or falls. 34. If the demand for insulin is inelastic, an increase in insulin prices leads to a. less total revenue for insulin makers. b. more total revenue for insulin makers. c. no change in total revenue for insulin makers. d. first a decrease, then an increase in total revenue for insulin makers. e. total revenue probably changes but we need more information about the change in total expenditures on insulin to determine if the total revenue rises, falls, or stays the same. 35. If the price elasticity of demand for gasoline equals 0.3, then an increase in the price of a gallon of gasoline from $1.80 to $1.90 a. decreases total revenue. b. increases total revenue. c. leads to no change in total revenue. d. makes the demand for gasoline elastic. e. Both answers B and D are correct. 6

36. Suppose a Minnesota snowmobile dealer lowers prices in February by 16.34 percent and the quantity demanded increases by 2.08 percent. Thus the demand for snowmobiles from this dealer is and the dealer's total revenue will. a. elastic; increase b. elastic; decrease c. inelastic; increase d. inelastic; decrease e. unit elastic; decrease 37. In the figure above, using the midpoint method, what is the price elasticity of demand when the price falls from $8 to $7? a. 4.0 b. 5.0 c. 0.5 d. 0.4 e. 0.25 38. In the figure above, if the price falls from $8 to $7 demand is a. elastic. b. inelastic. c. unit elastic. d. income elastic. e. perfectly elastic. 39. In the figure above, when the price falls from $8 to $7, total revenue a. increases from $120 to $210 so demand is elastic. b. decreases from $210 to $120 so demand is inelastic. c. increases from $120 to $210 so demand is inelastic. d. decreases from $210 to $120 so demand is elastic. e. increases from $120 to $210 but more information is needed to determine whether demand is elastic, inelastic, or unit elastic. 7

40. Suppose the price elasticity of demand for addicts of a drug is 0.11 and 3.46 for casual users. If the government legalized the drug and then implemented a tax on it so that its price rose, expenditure by addicts would and expenditure by casual users would. a. increase; increase b. increase; decrease c. decrease; increase d. decrease; decrease e. not change; decrease 41. The price elasticity of supply measures the a. percentage change in supply from a percentage change in demand. b. extent to which the quantity supplied of a good changes when the price of a good changes, other things remaining the same. c. the slope of the supply curve. d. how the equilibrium price changes in response to a change in the equilibrium quantity supplied. e. Both answers B and C are correct. 42. The opportunity cost of producing a good rises only slightly as the quantity produced increases. This good has a. an inelastic demand. b. an elastic demand. c. an elastic supply. d. an inelastic supply. e. a perfectly elastic supply. 43. Suppose an increase in demand causes the price to increase from $2 to $4 and the quantity to increase from 1,000 to 1,800. Using the midpoint method, the elasticity of supply equals a. 0.86. b. 1.17. c. 2.74. d. 0.68 e. None of the above answers is correct. 44. Suppose a decrease in demand causes the price to decrease from $4 to $3 and the quantity to decrease from 1,000 to 700. Using the midpoint method, the elasticity of supply equals a. 0.81. b. 1.24. c. 2.83. d. 0.18 e. None of the above answers is correct. 45. If a small percentage change in the price brings a very large percentage change in the quantity supplied, then the supply is almost perfectly and the supply curve is almost. a. elastic; vertical b. elastic; horizontal c. inelastic; horizontal d. inelastic ; vertical e. elastic; 45 degrees 46. One reason why the price elasticity of supply for DVD players is greater than one is that a. the cost of producing DVD players is small. b. the storage of DVD players is not possible. c. DVD players can be easily stored. d. the demand for DVD players is fairly large. e. DVD players require relatively advanced technology for their production. 8

47. When the percentage change in the quantity supplied is less than the percentage change in price, the supply is a. elastic. b. inelastic. c. unit elastic. d. perfectly unit elastic. e. perfectly elastic. 48. Because the price elasticity of supply for jumbo jets is 0.35, the supply of jumbo jets is a. elastic. b. unit elastic. c. inelastic. d. perfectly elastic. e. perfectly inelastic. 49. If a 20 percent increase in the price of a good does not change the quantity supplied, the a. supply is perfectly inelastic. b. supply is unit elastic. c. supply is perfectly elastic. d. supply is elastic. e. None of the above answers is correct. 50. The extent to which the demand for a good changes when the price of a substitute or complement changes, other things remaining the same, is measured as the a. income elasticity of demand. b. cross elasticity of demand. c. price elasticity of demand. d. price elasticity of supply. e. cross income elasticity of demand. 51. What is the formula for the cross elasticity of demand? The percentage change in the a. quantity demanded divided by the percentage change in the price of a substitute or complement. b. quantity supplied divided by the percentage change in price. c. quantity demanded divided by the percentage change in price. d. quantity demanded divided by the percentage change in income. e. equilibrium quantity demanded divided by the equilibrium quantity supplied. 52. Based on data in the table above, use the midpoint method to determine the cross elasticity of demand for ice cream and cake. a. the cross elasticity is 0.75 b. the cross elasticity is 1.75 c. the cross elasticity is 0.83 d. the cross elasticity is 4.0 e. the cross elasticity is 1.33 9

53. Based on the data in the table above, ice cream and cake are goods. a. inferior b. normal c. substitute d. complementary e. Both answers B and D are correct. 54. The cross elasticity of demand for butter and margarine is likely to be a. positive because they are substitutes. b. positive because they are complements. c. negative because they are substitutes. d. negative because they are complements. e. positive because they are normal goods. 55. If an increase in the price of green ketchup increases the demand for red ketchup, then a. red and green ketchup are substitutes. b. red and green ketchup are normal goods. c. the cross elasticity of demand for these two kinds of ketchup is positive. d. Both answers A and C are correct. e. Both answers A and B are correct. 56. Tacos and pizza are substitutes. If a 2 percent change in the price of a taco leads to a 4 percent change in the demand for pizza, the cross elasticity of demand equals a. 1 2. b. 1 2. c. 2. d. 2. e. 4. 57. When two goods are related such that an increase in the price of one good decreases the quantity demanded of the other good, these goods are definitely a. normal goods. b. luxury goods. c. complements. d. substitutes. e. inferior goods. 58. If two goods are, then an increase in the price of one leads to in the quantity demanded of the other. a. complements; a decrease b. complements; no change c. substitutes; a decrease d. substitutes; no change e. normal; an increase 59. The cross elasticity of demand for film cameras and film is likely to be a. positive because they are substitutes. b. positive because they are complements. c. negative because they are substitutes. d. negative because they are complements. e. negative because with the advent of digital cameras, film and film cameras are inferior goods 10

60. If the cross elasticity of demand between car insurance and new cars is -0.41, then car insurance and new cars are a. complements. b. substitutes. c. normal goods. d. inferior goods. e. unrelated goods. 61. If the cross elasticity of demand for DVD players and DVDs equals -2, then the products are a. unrelated. b. complements. c. inferior goods. d. substitutes. e. normal goods. 62. The income elasticity of demand is a measure of a. how demand for a product changes when the price of a substitute or complement product changes. b. how responsive consumers are to changes in the price of a product. c. how responsive suppliers are to changes in the price of a product. d. the extent to which the demand for a good changes when income changes. e. the extent to which the supply of a good changes when the demand changes as a result of a change in income. 63. The income elasticity of demand is if the good is good. a. positive; a normal b. positive; an inferior c. negative; a normal d. less than one; an inferior e. positive; a substitute 64. The income elasticity of demand for skiing trips to Vermont is greater than one. Thus a trip to Vermont for skiing is good. a. a normal b. an inferior c. a unit elastic d. a price elastic e. a price inelastic 65. What is an inferior good? a. a product of low quality that we do not want to purchase b. a product for which demand increases when income increases, and demand decreases when income decreases c. a product for which demand increases when income decreases, and demand decreases when income increases d. a product that is complementary e. a product that is a substitute for another, better good 66. If a 5 percent increase in income brings about a 10 percent decrease in the demand for a good, then the a. good is a normal good. b. good is an inferior good. c. income elasticity of demand is 0.5. d. income elasticity of demand is 2.0. e. income elasticity of demand is 5.0. 11

67. If a 5 percent decrease in income leads to a 15 percent decrease in the demand for a good, the income elasticity of demand equals a. 1 and the good is an inferior good. 3 b. 1/3 and demand for the good is income elastic. c. 3 and the good is a normal good. d. 3 and the demand for the good is income inelastic. e. 3 and the good is an inferior good 68. When income increases from $20,000 to $30,000 the quantity of inter-city bus trips taken per year decreases from 10 to 8. Hence a. inter-city bus trips are a normal good. b. the income elasticity of demand for inter-city bus trips is -1.8. c. the income elasticity of demand for inter-city bus trips is -0.56. d. Both answers A and B are correct. e. Both answers A and C are correct. 69. The income elasticity of demand for foreign travel a. is likely to be smaller than the income elasticity of demand for food. b. is likely to be larger than the income elasticity of demand for food. c. cannot be compared to the income elasticity of demand for food. d. is likely to be inelastic. e. is likely to be negative. 70. The lower the level of income in a country, the a. less income elastic is the demand for food. b. more income elastic is the demand for food. c. more negative the income elasticity of the demand for food. d. Both answers A and C are correct. e. Both answers A and B are correct. 71. Suppose an increase in supply lowers the price from $10 to $8 and increases the quantity demanded from 100 units to 130 units. Using the midpoint method, the elasticity of demand equals a. 1.17. b. 0.85. c. 0.26. d. 1.56. e. None of the above answers is correct. 72. The total revenue test says that if a price decrease leads to a. an increase in total revenue, supply is elastic. b. a decrease in total revenue, supply is unit elastic. c. a decrease in total revenue, supply is inelastic. d. an increase in total revenue, supply is inelastic e. None of the above answers is correct. 73. If demand is, a price cut the total revenue. a. elastic; increases b. unit elastic; decreases c. inelastic; increases d. inelastic; does not change e. normal; decreases 12

74. A curve means that. a. horizontal demand; a change in price does not change total revenue b. horizontal demand; the elasticity of demand is less than 1 c. horizontal supply; elasticity of supply is infinite d. horizontal supply; elasticity of demand is infinite e. vertical demand; a change in price does not change total revenue 75. The cross elasticity of demand a. means that an increase in the demand for one good leads to a decrease in demand for another good. b. measures how a change in the price of one good impacts the demand for another good. c. measures how a change in supply impacts the demand for the good. d. means that an increase in the price of one good leads to an increase in the price of another good. e. measures how a change in income impacts the demand for the good. 76. If the demand for a good is elastic, then a. people do not change the quantity they demand when the price of the good changes. b. a change in price leads to a smaller percentage change in the quantity demanded. c. people substantially decrease the quantity of the good they buy if its price increases by a small percentage. d. a change in the quantity demanded is smaller than the change in price. e. the quantity demanded divided by the price exceeds 1.00. 77. We calculate the price elasticity of demand by as the a. ratio of the percentage change in the quantity demanded to the percentage change in price. b. change in quantity divided by the change in price. c. ratio of the percentage change in the price to the percentage change in quantity. d. percentage change in the quantity demanded divided by the percentage change in income. e. equilibrium quantity divided by the equilibrium price. 78. If the price doubles and the quantity supplied also doubles, the price elasticity of supply for the good is a. 1. b. 1. c. 2. d. 2. e. 100 percent. 79. If the price elasticity of supply for a good is 0.75, then a. the percentage change in the quantity supplied is less than the percentage change in price. b. the supply is elastic. c. an increase in the price boosts the quantity supplied by a larger percentage. d. the supply is inelastic so the demand must also be inelastic. e. None of the above answers is correct. 13

80. The figure above shows the supply curve for a good with a a. perfectly elastic supply. b. perfectly inelastic supply. c. elastic supply. d. inelastic supply. e. unit elastic supply. 14